Roku Tops 2Q Estimates But Cautions About Ad Outlook

Roku recorded better-than-expected 2Q revenues of $356 million, compared with Street estimates of $315 million. The company’s loss of $0.35 per share beat analysts’ expectations for a loss of $0.50 per share. However, the TV streaming giant remains uncertain about its advertising outlook for the second half of the year due to the negative coronavirus impact on the industry.

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Roku’s (ROKU) CFO Steve Louden stated, “We’re still growing significantly, but it is slower growth than we would’ve otherwise expected, given the macro environment.” He added that “There might be some short-term volatility with the ad market, but overall this environment is very good for Roku. It is clear that the long-term trend to streaming has being accelerated by Covid-19.” The company warned in a letter to shareholders that its total TV ad spending won’t return to pre-pandemic levels until 2021.

Ahead of Roku’s earnings, Rosenblatt analyst Mark Zgutowicz raised the stock’s price target to $190 (15% upside potential) from $145 and maintained a Buy rating. Zgutowicz wrote in a note to investors that “We are incrementally more bullish on Roku’s ad revenue prospects NTM [next twelve months] as we believe the pandemic has (at last) become a tipping point to more meaningful transfer of linear TV ad dollars to CTV.”

Loop Capital analyst Alan Gould on Aug. 3 raised the price target to $120 (28% downside potential) from $90. According to Gould, the “connected TV spending held up better than digital TV overall during Q2.” However, he maintained a Hold rating on the stock due to its valuation and competition concerns.

Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 7 Buys, 5 Holds, and 2 Sells. The average price target of $135.86 implies a downside potential of about 18%. (See ROKU stock analysis on TipRanks).